Note 4 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2015

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 4: Loans and Allowance for Loan Losses

Categories of loans at June 30, 2015 and December 31, 2014 include:

	June 30,			December 31,
	2015			2014
Real estate - residential mortgage:
One to four family units	$	95,902,509		$	97,900,814
Multi-family		39,993,133			33,785,959
Real estate - construction		35,368,786			36,784,584
Real estate - commercial		228,795,902			215,605,054
Commercial loans		89,707,877			92,114,216
Consumer and other loans		21,822,792			17,246,437
Total loans		511,590,998			493,437,064
Less:
Allowance for loan losses		(6,651,308	)		(6,588,597	)
Deferred loan fees/costs, net		(307,566	)		(261,831	)
Net loans	$	504,632,124		$	486,586,636

Classes of loans by aging at June 30, 2015 and December 31, 2014 were as follows:

As of June 30, 2015

	30-59 Days Past Due		60-89 Days Past Due		90 Days and more Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	432	$	111	$	397	$	940	$	94,963	$	95,903	$	-
Multi-family		-		-		-		-		39,993		39,993		-
Real estate - construction		-		-		-		-		35,368		35,368		-
Real estate - commercial		-		-		-		-		228,796		228,796		-
Commercial loans		125		612		220		957		88,751		89,708		-
Consumer and other loans		1		5		29		35		21,788		21,823		-
Total	$	558	$	728	$	646	$	1,932	$	509,659	$	511,591	$	-

As of December 31, 2014

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In Thousands)
Real estate - residential mortgage:
One to four family units	$	113	$	428	$	279	$	820	$	97,081	$	97,901	$	-
Multi-family		-		-		-		-		33,786		33,786		-
Real estate - construction		-		-		-		-		36,785		36,785		-
Real estate - commercial		-		-		-		-		215,605		215,605		-
Commercial loans		-		-		227		227		91,887		92,114		-
Consumer and other loans		23		35		-		58		17,188		17,246		-
Total	$	136	$	463	$	506	$	1,105	$	492,332	$	493,437	$	-

Nonaccruing loans are summarized as follows:

	June 30,		December 31,
	2014		2014
Real estate - residential mortgage:
One to four family units	$	745,789	$	911,240
Multi-family		-		-
Real estate - construction		2,683,792		2,892,772
Real estate - commercial		-		459,823
Commercial loans		938,908		1,026,772
Consumer and other loans		29,242		-
Total	$	4,397,731	$	5,290,607

The following tables present the activity in the allowance for loan losses based on portfolio segment for the three and six months ended June 30, 2015 and 2014:

Three months ended June 30, 2015	Construction			Commercial Real Estate			One to four family			Multi-family		Commercial		Consumer and Other			Unallocated			Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of period	$	1,361		$	1,986		$	884		$	133	$	1,804	$	221		$	367		$	6,756
Provision charged to expense		(16	)		(41	)		18			18		87		22			(88	)	$	-
Losses charged off		-			-			(99	)		-		-		(15	)		-		$	(114	)
Recoveries		1			-			2			-		2		4			-		$	9
Balance, end of period	$	1,346		$	1,945		$	805		$	151	$	1,893	$	232		$	279		$	6,651

Six months ended June 30, 2015	Construction		Commercial Real Estate			One to four family			Multi-family		Commercial			Consumer and Other			Unallocated		Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of period	$	1,330	$	1,992		$	900		$	127	$	1,954		$	185		$	101	$	6,589
Provision charged to expense		8		(47	)		(6	)		24		(64	)		57			178	$	150
Losses charged off		-		-			(99	)		-		-			(33	)		-	$	(132	)
Recoveries		8		-			10			-		3			23			-	$	44
Balance, end of period	$	1,346	$	1,945		$	805		$	151	$	1,893		$	232		$	279	$	6,651

Three months ended June 30, 2014	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated			Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of period	$	2,008		$	2,344		$	962		$	147		$	1,799		$	228		$	273		$	7,761
Provision charged to expense		76			(51	)		65			(1	)		477			32			(273	)	$	325
Losses charged off		(207	)		(9	)		(14	)		-			(1,058	)		(49	)		-		$	(1,337	)
Recoveries		2			-			1			-			26			10			-		$	39
Balance, end of period	$	1,879		$	2,284		$	1,014		$	146		$	1,244		$	221		$	-		$	6,788

Six months ended June 30, 2014	Construction			Commercial Real Estate			One to four family			Multi-family			Commercial			Consumer and Other			Unallocated			Total
Allowance for loan losses:	(In Thousands)
Balance, beginning of period	$	2,387		$	2,059		$	997		$	209		$	1,519		$	272		$	359		$	7,802
Provision charged to expense		(304	)		234			114			(63	)		914			(11	)		(359	)	$	525
Losses charged off		(207	)		(9	)		(100	)		-			(1,222	)		(68	)		-		$	(1,606	)
Recoveries		3			-			3			-			33			28			-		$	67
Balance, end of period	$	1,879		$	2,284		$	1,014		$	146		$	1,244		$	221		$	-		$	6,788

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2015 and December 31, 2014:

As of June 30, 2015	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
Allowance for loan losses:	(In Thousands)
Ending balance: individually evaluated for impairment	$	375	$	-	$	-	$	-	$	313	$	21	$	-	$	709
Ending balance: collectively evaluated for impairment	$	971	$	1,945	$	805	$	151	$	1,580	$	211	$	279	$	5,942
Loans:
Ending balance: individually evaluated for impairment	$	2,684	$	-	$	745	$	-	$	939	$	2,279	$	-	$	6,647
Ending balance: collectively evaluated for impairment	$	32,684	$	228,796	$	95,158	$	39,993	$	88,769	$	19,544	$	-	$	504,944

December 31, 2014	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Unallocated		Total
Allowance for loan losses:	(In Thousands)
Ending balance: individually evaluated for impairment	$	376	$	158	$	36	$	-	$	203	$	12	$	-	$	785
Ending balance: collectively evaluated for impairment	$	954	$	1,834	$	864	$	127	$	1,751	$	173	$	101	$	5,804
Loans:
Ending balance: individually evaluated for impairment	$	2,893	$	460	$	847	$	-	$	1,027	$	801	$	-	$	6,028
Ending balance: collectively evaluated for impairment	$	33,892	$	215,145	$	97,054	$	33,786	$	91,087	$	16,445	$	-	$	487,409

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Bank’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

The following table summarizes the recorded investment in impaired loans at June 30, 2015 and December 31, 2014:

	June 30, 2015						December 31, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	746	$	746	$	-	$	632	$	632	$	-
Multi-family		-		-		-		-		-		-
Real estate - construction		74		74		-		74		74		-
Real estate - commercial		-		-		-		-		-		-
Commercial loans		326		326		-		341		341		-
Consumer and other loans		2,265		2,265		-		-		-		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	-	$	-	$	-	$	279	$	279	$	36
Multi-family		-		-		-		-		-		-
Real estate - construction		2,610		3,865		375		2,819		4,074		376
Real estate - commercial		-		-		-		460		460		158
Commercial loans		613		916		313		685		988		203
Consumer and other loans		183		183		21		91		91		12
Total
Real estate - residential mortgage:
One to four family units	$	746	$	746	$	-	$	911	$	911	$	36
Multi-family		-		-		-		-		-		-
Real estate - construction		2,684		3,939		375		2,893		4,148		376
Real estate - commercial		-		-		-		460		460		158
Commercial loans		939		1,242		313		1,026		1,329		203
Consumer and other loans		2,448		2,448		21		91		91		12
Total	$	6,817	$	8,375	$	709	$	5,381	$	6,939	$	785

The following table summarizes average impaired loans and related interest recognized on impaired loans for the three and six months ended June 30, 2015 and 2014:

	For the Three Months Ended				For the Three Months Ended
	June 30, 2015				June 30, 2014
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	749	$	1	$	823	$	-
Multi-family		-		-		-		-
Real estate - construction		74		-		94		-
Real estate - commercial		-		-		264		-
Commercial loans		327		-		3,486		98
Consumer and other loans		16		-		-		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	361	$	-	$	325	$	-
Multi-family		-		-		-		-
Real estate - construction		2,610		-		3,532		-
Real estate - commercial		-		-		574		-
Commercial loans		620		-		699		-
Consumer and other loans		127		-		272		-
Total
Real estate - residential mortgage:
One to four family units	$	1,110	$	1	$	1,148	$	-
Multi-family		-		-		-		-
Real estate - construction		2,684		-		3,626		-
Real estate - commercial		-		-		838		-
Commercial loans		947		-		4,185		98
Consumer and other loans		143		-		272		-
Total	$	4,884	$	1	$	10,069	$	98

	For the Six Months Ended				For the Six Months Ended
	June 30, 2015				June 30, 2014
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(In Thousands)
Loans without a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	729	$	2	$	752	$	1
Multi-family		-		-		-		-
Real estate - construction		74		-		95		-
Real estate - commercial		-		-		408		-
Commercial loans		332		-		3,088		98
Consumer and other loans		13		-		-		-
Loans with a specific valuation allowance
Real estate - residential mortgage:
One to four family units	$	456	$	-	$	329	$	-
Multi-family		-		-		-		-
Real estate - construction		2,680		-		3,883		-
Real estate - commercial		-		-		412		-
Commercial loans		621		-		1,897		-
Consumer and other loans		139		-		375		-
Total
Real estate - residential mortgage:
One to four family units	$	1,185	$	2	$	1,081	$	1
Multi-family		-		-		-		-
Real estate - construction		2,754		-		3,978		-
Real estate - commercial		-		-		820		-
Commercial loans		953		-		4,985		98
Consumer and other loans		152		-		375		-
Total	$	5,044	$	2	$	11,239	$	99

At June 30, 2015, the Bank’s impaired loans shown in the table above included loans that were classified as troubled debt restructurings (“TDR”). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor’s projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.

The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Bank include the debtor’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by the Bank generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction on the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.

The following table presents the carrying balance of TDRs as of June 30, 2015 and December 31, 2014:

	June 30,		December 31,
	2015		2014
Real estate - residential mortgage:
One to four family units	$	220,087	$	505,047
Multi-family		-		-
Real estate - construction		2,683,792		2,892,772
Real estate - commercial		-		459,823
Commercial loans		719,108		799,572
Consumer and other loans		-		-
Total	$	3,622,987	$	4,657,214

The bank did not have any new TDRs for the six months ending June 30, 2015. The Bank has allocated $687,284 and $773,652 of specific reserves to customers whose loan terms have been modified in TDR as of June 30, 2015 and December 31, 2014, respectively.

There were no TDRs for which there was a payment default within twelve months following the modification during the six months ending June 30, 2015 and 2014. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks loans by an internal rating system. All loans are assigned an internal credit quality rating based on an analysis of the borrower’s financial condition. The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank’s safety and soundness. The following are the internally assigned ratings:

Pass: This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.

Special mention: This rating represents loans that are currently protected but are potentially weak. The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.

Substandard: This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Doubtful: This rating represents loans that have all the weaknesses of substandard classified loans with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Real estate-Residential 1-4 family: The residential 1-4 family real estate loans are generally secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Real estate-Construction: Construction and land development real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

Real estate-Commercial: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.

Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.

The following tables provide information about the credit quality of the loan portfolio using the Bank’s internal rating system as of June 30, 2015 and December 31, 2014:

June 30, 2015	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	25,735	$	218,931	$	88,399	$	39,414	$	79,300	$	21,491	$	473,270
Special Mention		6,949		3,900		5,225		579		3,595		-		20,248
Substandard		2,684		5,965		2,279		-		6,209		332		17,469
Doubtful		-		-		-		-		604		-		604
Total	$	35,368	$	228,796	$	95,903	$	39,993	$	89,708	$	21,823	$	511,591

December 31, 2014	Construction		Commercial Real Estate		One to four family		Multi-family		Commercial		Consumer and Other		Total
	(In Thousands)
Rating:
Pass	$	27,370	$	207,311	$	94,129	$	33,786	$	78,197	$	17,015	$	457,808
Special Mention		6,522		5,076		2,501		-		10,273		-		24,372
Substandard		2,893		2,758		1,271		-		3,644		231		10,797
Doubtful		-		460		-		-		-		-		460
Total	$	36,785	$	215,605	$	97,901	$	33,786	$	92,114	$	17,246	$	493,437

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees net of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the loan is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.